Commercial property rebound depends on tech demand

SAN JOSE – The prospects for commercial real estate in Silicon Valley remain “bleak” due to the ongoing economic setbacks and uncertainties caused by the coronavirus, Colliers International reported on Wednesday.

One possible ray of hope in the dark and hideous economic landscape of the coronavirus: a surge in venture capital funding for startups and a boom in IPOs for emerging tech companies.

“The prospects for an office remain bleak in the short term,” according to the Colliers International Market Forecast Report 2021 for Silicon Valley, written by Lena Tutko, a senior research manager at commercial real estate brokerage.

As for the factors behind the blurry outlook for the Silicon Valley office market, the effects of the coronavirus have created conflicting trends in office use.

“While the pandemic has shown that remote working is a viable and productive option for some, it has also been isolating and challenging for many,” said Colliers in his forecast report.

As a result, the office market in Silicon Valley – and the rest of the Bay Area – is in a kind of limbo.

“Many companies keep their real estate decisions on hold until there is more foresight as to when it is safe to return to the office,” Tutko wrote in the report. “Many want to follow big technologies like Google and Apple to model their comeback.”

Still, tech companies seem excited for the first few weeks of 2021, according to the report.

“As vaccination increases, the demand for office space is likely to increase to allow social distancing and circulation of people,” the Colliers report said.

And some encouraging signs have emerged associated with relatively new technology companies.

Venture capitalists have struggled to pour cash infusions into promising upstarts. Tutko noted in the report that this pattern is often a predictor of increasing demand for office space.

In addition, a number of companies have successfully launched initial public offerings of their shares.

“Nationally, tech IPOs raised $ 28.3 billion in 2020, with the Bay Area accounting for $ 15.2 billion, according to Pitchbook Data,” said Colliers in his forecast report.

That means the Bay Area raised 57.3% of all IPO funds raised in the US last year.

According to Colliers, Airbnb, DoorDash and Snowflake together harvested $ 10.2 billion in 2020.

The hotel sector remains in a difficult position as the coronavirus has driven away so many travelers, especially business travelers.

“While the future of the hospitality industry remains uncertain, many experts argue that it is a matter of time before travel resumes and demand rises again,” said Colliers.

Vacation travel is expected to recover first, followed by business travel, while international travel will lag behind.

While the hotel sector in Silicon Valley is likely to improve by the end of 2021, a meaningful recovery may not be expected for years, warned Colliers.

“A full recovery will most likely take us well into 2023 to get back to 2019 levels,” said Colliers in the report.

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